Kiwi Share Being Reviewed to Meet Changing Times - Minister of Communications Media Statement

The Kiwi Share agreement between the government and Telecom that ensures households enjoy free local phone calls is being reviewed to ensure it takes account of fast-changing technologies.

Communications Minister David Cunliffe says the review will include whether to include rural broadband Internet access in the range of Telecommunications Service Obligations services.

Mr Cunliffe has released the terms of reference for reviewing the Telecommunications Service Obligations (TSO) regulatory framework, which includes the Kiwi Share.

The review will consider a number of issues concerning the effectiveness of the Local Service (Kiwi Share) TSO between the Crown and Telecom. The review will also consider select aspects of the regulatory rules controlling the way that TSO instruments are administered.

"The Labour-led government recognises the need for New Zealanders to have access to affordable basic telephone services," Mr Cunliffe said. "We have no intention of moving away from the basic principle in the Kiwi Share of preserving free local calling for residential telephone users."

This release of the terms of reference for the TSO review formally initiates the review process. A discussion document to be published in the first half of this year will invite submissions from the industry, user groups and other interested parties.

This review will enable the Local Service (Kiwi Share) TSO and the rules for application of TSO levies to be considered in the context of evolving Internet and broadband technologies to ensure the TSO continues to meet the needs of New Zealanders.

"The review will be conducted in parallel with the government's Rural Broadband Strategy work to ensure that basic telephone and internet access services of an acceptable standard can be made available for residential users in rural areas," Mr Cunliffe said.

The TSO review was heralded in the government's Telecommunications Stocktake Announcement last May. It is being coordinated by the Ministry of Economic Development.

Background

The Kiwi Share was originally put in place when Telecom was privatised in 1990. The service requirements of the Kiwi Share were subsequently converted into what are known as Telecommunications Service Obligations (TSOs), in the form a deed between Telecom and the Crown. This agreement was given formal standing as part of the telecommunications regulatory regime established by the Telecommunications Act 2001.

TSO instruments are used to fund the subsidisation of telecommunications services to meet government social objectives, with TSO charges levied on the telecommunications industry. The Telecommunications Stocktake findings identified TSOs as an area that should be reviewed to ensure that the arrangements continue to meet government objectives.

The review will contribute to addressing deficiencies in rural broadband connectivity to the extent that TSO instruments are considered suitable mechanisms for meeting the needs of rural users. The wider issues of ubiquity and availability for broadband services are being addressed in the Rural Broadband Strategy currently under development, in tandem with the TSO workstream.

Terms of reference for review of the TSO framework

Context

The Telecommunications Service Obligations regulatory framework was introduced by the Telecommunications Act 2001, and facilitates the establishment and administration of TSO instruments for the supply of telecommunications services to end-users for meeting government social objectives.

The Local Residential Telephone Service (Local Service) TSO was created in 2001 to cover Kiwi Share requirements for ordinary local telephone service.

The findings of the Telecommunications Industry Stocktake announced by the Minister of Communications in May 2006 identified the need for a review of TSO arrangements to ensure these continue to be effective. These terms of reference outline the scope of issues to be addressed in the TSO review.

Scope and Objectives

The primary objective of the review is to consider improvements to the TSO framework in the interests of telecommunications consumers in New Zealand. This includes assessing the effectiveness of the Local Service TSO. The main areas that the TSO review will focus on are the:

• TSO requirements for the supply of telephone and Internet access services;
• TSO role in the supply of emergency call services;
• TSO role in the supply of rural broadband services; and
• Rules for the application of TSO levies on the industry to recover charges for services supplied under TSO instruments.

Issues for Consideration

Specific matters that the review will examine include:

• Whether the Local Service TSO is achieving the objectives for this TSO instrument, and the wider objectives of the TSO framework and telecommunications regulatory regime;
• The impacts of market competition on the economic sustainability of the existing Local Service TSO requirements;
• The impact of the Local Service TSO on the infrastructure investment incentives of alternative service providers;
• Whether TSO supply of telephone and Internet access services should be made contestable;
• "Provider of Last Resort" requirements and the feasibility of appointing multiple TSO providers for the supply of TSO local telephone service;
• The extent and form of TSO subsidisation for local telephone services and user eligibility for subsidised service;
• The need for continued price control of local telephone service, the method of price control and the enforcement mechanism for price control going forward;
• Compensation to Telecom for the supply of services under the Local Service TSO;
• Potential changes to the services specified for supply under the Local Service TSO to recognise the industry transition to Internet Protocol (IP) technologies;
• The suitability of existing TSO service performance standards and measures in a broadband and /or IP next generation network technology environment; and
• Whether to include rural broadband Internet access in the range of TSO services.

The review is predicated on retaining for consumers generally the basic service entitlements prescribed in the existing TSO deed for local telephone service.

Changes would be considered to improve the supply of service within a next-generation network environment. However, the option of charge-free local calling on dial-up would be preserved.

The review will be led by the Ministry of Economic Development, which is responsible for monitoring the TSO regulatory framework generally and administering the specific TSO instruments established between the Crown and TSO providers.

Note: The review excludes consideration of the Relay Service TSO as this was the subject of a review concluded in July 2006.

Interrelationships

The TSO review shall be mutually supportive of the objectives for other areas of policy study and review which impact on the TSO framework, including:

Digital Strategy (including the Broadband Challenge)

The TSO framework should complement the vision for digital connectivity, content and confidence, with an emphasis on supporting the goal of extending the reach of broadband.

Rural Broadband Strategy

The strategy is identifying gaps in the availability of broadband services for rural areas and solutions to close these gaps. A TSO is a possible mechanism that could be used to address shortfalls in the coverage of broadband networks.

Operational Separation Undertakings

Implementation of separating the Telecom business organisationally for meeting transparency and non-discrimination goals to facilitate competition may necessitate consideration of splitting TSO requirements across particular Telecom business units.

Emergency Telecommunications Services Strategy

The government strategy under development for public safety telecommunications by the inter-agency ETS committee will provide guidance and direction for the future mode of operation for the supply of emergency call services.

Review of Kiwi Share Requirements for Telecom Corporate Governance

The Treasury-led review of the Kiwi Share requirements concerning company ownership and voting has implications for retention of the original Kiwi Share service requirements prescribed in Telecom's company constitution.

Review Process and Consultation

The TSO Review will require a whole of government approach led by the MED, in consultation with the Treasury, Commerce Commission, Department of Prime Minister and Cabinet, Ministry of Agriculture and Forestry, and others as appropriate.

The views and comments of the industry and other stakeholders on TSO issues are to be sought through a discussion document canvassing the issues and possible options for change, with release scheduled for the first half of 2007.

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